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Oil

Saudi Arabia cuts price for oil amid fears of struggling coronavirus demand recovery

Published: Updated:

Saudi Arabia cut pricing for oil sales in October, a sign the world’s biggest exporter sees fuel demand wavering amid more coronavirus flare-ups around the globe.

The kingdom’s state producer, Saudi Aramco, reduced its key Arab Light grade of crude by a larger-than-expected amount for shipments to Asia, its main market. It also lowered pricing for US buyers.

Aramco cut Arab Light to Asia to a discount against the benchmark oil price used by the Saudis for the first time since June. It’s the second consecutive month of reductions for barrels to the region and the first month in six that US refiners will see a cut. Aramco will trim pricing, too, for lighter barrels to northwest Europe and the Mediterranean region.

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Oil demand has plunged this year after the pandemic forced governments to lock down economies, airlines to cancel fights and workers to stay at home. Saudi Arabia, Russia and other OPEC+ producers agreed in April to slash output by almost 10 millions barrels a day, roughly 10 percent of global supply, to bolster prices.

Those cuts and a demand recovery in China have since helped oil prices more than double. But they’re still down around 35 percent this year. Brent crude fell to $42.66 a barrel on Friday, suffering its biggest weekly loss in almost three months as infection rates continued to climb in nations such as the US and India.

“Aramco understands the importance of China for the global oil market,” said Giovanni Staunovo, a commodities analyst with UBS Group AG. “The cut for October might help to support stronger imports from China over the coming months.”

The company is reducing pricing for Light exports to Asia in October by $1.40 a barrel to 50 cents below the regional benchmark. It was expected to pare pricing by $1 a barrel to a 10-cent discount, according to a Bloomberg survey.

“The market will interpret these numbers to have been fair,” Mike Muller, head of trader Vitol Group’s Asian operations, said on a Sunday conference call hosted by Dubai-based consultancy Gulf Intelligence. “There are some that wanted an even greater decrease. But, on the whole, people will say: ‘OK, we’ll take that.’”

The Saudis raised pricing from June to August for Asia. However, refinery demand has softened due to weak profits from turning crude into gasoline and other fuels. Asian refiners are also working through large stockpiles built up earlier in the year when crude prices troughed.

Aramco is cutting prices for the US for the first time since April after Saudi oil exports to the country dwindled to the lowest in decades in August.

Saudi Arabia usually sets the tone for pricing decisions by other Middle Eastern petrostates, including Iraq and the United Arab Emirates, the second- and third-largest producers in the Organization of Petroleum Exporting Countries.

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